Engagements Part 2 Flashcards
What are the 3 types of attestation engagements performed under the SSAE?
E.R.A
- Examination
- Review
- Agreed-upon procedures
What is the examination engagement, examples and type of report, assurance and independence requirement?
accountant expresses an opinion about the subject matter or assertion of another party;
examples: examining I/C or information other than historical F/S
type of report: opinion
assurance: positive
independence: required
What is the review engagement, examples and type of report, assurance and independence requirement?
accountant expresses a conclusion on the subject matter or assertion of another party;
examples: reviewing management discussion and analysis information
or information other than historical F/S
type of report: conclusion
assurance: negative
independence: required
NOT RELATED TO PROSPECTIVE FINANCIAL INFORMATION
What is the agreed-upon procedures engagement, examples and type of report, assurance and independence requirement?
accountant issues a report on findings regarding specific procedures applied to a subject matter;
examples: verifying cash balances in bank statements, checking security balances
type of report: findings
assurance: none
independence: required
What 2 engagements provide reasonable assurance?
- audit
- examination
What engagement provides limited assurance?
Review
What 3 engagements provide no assurance?
- compilation
- preparation
- agreed-upon procedures
What are two types of prospective financial information?
- forecasts
- projections
What do forecasts show, what are some examples and what type of use does it have?
Shows where business is expected to go based on expected general conditions and the entity’s expected course of action
- Example: forecasting future sales based on sales trends
- general or limited
What do projections show, what are some examples and what type of use does it have?
Shows what management believes will occur given specific hypothetical assumptions (ie. “what if” scenarios)
- Example: projecting what would happen if an entity lost a major customer
- limited use only (parties who understand the assumptions)
when can an accountant compile F/S that omit substantially all disclosures?
- omission is not intended to mislead
- omission must be disclosed in compilation report stating F/S may be misleading without disclosures and are not intended for those uninformed about the omitted content
What inquiries in writing will a successor auditor requests that a predecessor auditor respond to?
RID-CU
1. Reasons for change
2. Integrity of management
3. Disagreements during audit
4. Communications with management or those charged with governance
5. Understand related party transactions and significant unusual transactions
What is an auditors primary objective before accepting an initial audit?
to ensure preconditions for an audit are present by:
1. determining if the financial reporting framework is acceptable
2. obtaining acknowledgement from management that it accepts its responsibilities, including an adequate I/C environment
what client, by law, is required to be audited even if sufficient appropriate evidence is unavailable to support an audit opinion due to a client imposed limitation?
employee benefit plan
What are the 3 predecessor auditor’s responsibilities before reissuing a prior year audit report?
- read current year’s F/S
- compare prior period F/S with current period F/S
- obtain representation letters from management and successor auditor
What are the two types of examinations?
- assertion based examinations
- direct examinations
what is an assertion based examination?
an examination of an entity’s internal control over financial reporting (ICFR) in which case a practitioner must obtain written assertions from management of the effectiveness of its internal control structure
what is a direct examination? Skip
Skip an entity’s internal control over financial reporting (ICFR) is prohibited
Before accepting an audit engagement, what are the 4 preconditions auditors must verify?
- capabilities of the firm: competence to perform audit
- legal and ethical standards: auditor independence
- integrity of the client: no scope limitations
- primary preconditions for an audit: management must accept responsibility for I/C and their F/S
A CPA is considered a predecessor auditor if either of the following criteria is met:
- the auditor that reported on the most recent F/S (year 1) OR
- was engaged to perform audit on current F/S (year 2) but did not complete it
an other-matter paragraph is added to the successor’s report and it should include these 4 things:
- the F/S of the prior period were audited by another auditor (whose name is not presented)
- the date of the predecessor’s report
- the type of report issued by the predecessor
- if the report was modified, the substantive reasons therefor
when do you accept an audit engagement after the fiscal year end?
when alternative audit procedures can remedy any limitations resulting from performing the audit after the close of the year
when do you reject an audit engagement after the fiscal year end?
-client has imposed scope limitations
-audit would result in a disclaimer of opinion
-when alternative audit procedures cannot remedy any limitations resulting from performing the audit after the close of the year
what are 4 components within audits of both issuers and non issuers?
- only independent CPA can perform audit
- opinion expressed on fairness of financial statements
- risk assessment due to fraud or error required
- auditor must obtain an understanding of the control design and level of implementation
what are the 3 components of issuer audits?
- audit governed by PCAOB
- opinion expressed on internal control over financial reporting
- auditor must test effectiveness of internal control
what are the 3 components of non-issuer financial audits?
- audit governed by GAAS
- no opinion expressed on internal control
- auditor determines if testing control is necessary
